NASHVILLE - Chattanooga city government's use of Internet sales sites to establish fair market value for used equipment purchases is no legal substitute for public advertisements and competitive bidding, Tennessee Attorney General Robert Cooper says.

Records show officials used the method on at least one occasion with the City Council on Feb. 26 approving the then-Mayor Ron Littlefield administration's recommended purchase of a $168,000 used Caterpillar hydraulic excavator.

The opinion was requested by state Sen. Todd Gardenhire, R-Chattanooga. Gardenhire said he sought Cooper's advice after the city's internal auditor, Stan Sewell, came to him about the issue in April.

In his June 10 opinion, Cooper said discarding the advertising and bidding requirements by local governments can be done but only in two circumstances. One method is documenting the value of the item through an appraisal conducted by a licensed appraiser.

The second method, Cooper said, is establishing a general range of value "through a listing in a nationally recognized publication" such as the National Automobile Dealers Association Used Car Guide or the Green Guide, a specialty publication that states values on used equipment.

"If either of these tests are met, then the municipality or county may purchase the item if the price of the item is not more than 5 percent higher than the highest value of the documented range," Cooper wrote.

Sen. Todd Gardenhire
R-Chattanooga

Sen. Todd Gardenhire
R-Chattanooga

Photo by
Contributed Photo
/Times Free Press.

A website that "simply lists items for sale is not a 'nationally recognized publication' that contains the current fair market value of the item" as required by Tennessee Code Annotated 12-3-1003 (b)," the attorney general said.

Sewell had raised doubts about the practice in an Oct. 13, 2009, memo to city officials. That came in response to questions raised by the city's then-General Services Director Paul Page regarding not adhering to competitive bidding requirements outlined in state law regarding used equipment.

Sewell noted the exemptions in the 2009 memo but emphasized they required "documented due diligence" through the listing in a nationally recognized publication.

According to Sewell's April 3 letter to Gardenhire, in the Feb. 26 purchase this year, the city used the sites www.rockanddirt.com and www.machinerytrader.com.

Mayor Andy Berke, who on April 15 succeeded Littlefield, said Tuesday his administration hasn't used the questioned method.

"My administration is committed to getting the best value for taxpayers," Berke said. "We want to pay no more than a true fair market value for any item."

Asked if the city had used the questioned method prior to the February purchase, Berke said he spoke with the city's chief financial officer, Daisy Madison, who told him as far as she knew it had not.

"That's what we've been able to find out," Berke said.

Sewell said in an interview Tuesday he noticed the Feb. 26 approval of the purchase that began with prices listed on the two websites. He said not being an attorney himself, he asked Gardenhire to request a formal legal opinion from Cooper.

Emphasizing he did not "identify or assert any malicious intent" in the purchase, Sewell said that as an auditor he is generally "suspicious" of such purchases because of the "lack of competitiveness."

"If you have collaboration between a city employee [agent] and a vendor, it is almost impossible for an auditor or investigator to identify improper activity," he said in a followup email.

In their Feb. 13 request for council action, city officials supplied website printouts of a $225,000 excavator offered by Knoxville-based Stowers Machinery Corp.; a $235,000 excavator from a California company and a similar piece of equipment from a Virginia company that listed no price.

Sewell said he believes the city purchased the equipment from Stowers but had no details.

It was not clear how the price went from $225,000 to the $168,000 figure cited in the resolution.

Armed with Cooper's legal opinion, Sewell followed up with a memo last Thursday to the council, where seven of the nine members are newcomers elected in March.

"As stated in such opinion," he wrote, "list prices do not meet the standard of determining fair market value as is necessary."

He recommended the council "deny approval of any used equipment purchases not supported by the proper valuation documentation. Due to the high level of risk involved in used equipment purchases, I further recommend City Council thoroughly scrutinize any used equipment purchases prior to approval."